SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORMS 10-K and 10-K/A
(Amendment No. 1)
(See explanatory note on page 2)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED SEPTEMBER 25, 2005
COMMISSION FILE NUMBER: 0-19797
WHOLE FOODS MARKET, INC.
(Exact name of registrant as specified in its charter)
(State of (IRS Employer
incorporation) Identification No.)
550 Bowie St.
Austin, Texas 78703
(Address of principal executive offices)
Registrant's telephone number, including area code:
Securities registered pursuant to section 12(g) of the Act:
Common Stock, no par value
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No __
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes _ No
The aggregate market value of all common stock held by non-affiliates of the registrant as of April 8, 2005 was
The number of shares of the registrant's common stock, no par value, outstanding as of November 20, 2005 was 68,839,328.
On December 8, 2005, we filed the Annual Report on Form 10-K for Whole Foods Market, Inc. (the “Company”) for the
fiscal year ended September 25, 2005. The information required by Part III of such report was not set forth therein and was
to be incorporated by reference from the Company’s Definitive Proxy Statement for the Annual Meeting of Stockholders to
be held on March 6, 2006. On January 11, 2006, Amendment No. 1 to the Annual Report on Form 10-K/A was filed solely
to include the information that was previously intended to have been incorporated by reference. As a result, Amendment
No. 1 to the Annual Report on Form 10-K/A contain forward-looking information which was not updated for events
subsequent to the date of the original filing, and all information contained in Amendment No. 1 to the Annual Report on
Form 10-K/A and the original Annual Report on Form 10-K is subject to updating and supplementing as provided in the
periodic reports that the Company has filed or will file with the SEC after the original filing date. This document is a
compilation of the information contained in the original Annual Report on Form 10-K and Amendment No. 1 to the Annual
Report on Form 10-K/A.
We completed a two for one stock split of our common stock on December 27, 2005. However, none of the share or per
share information set forth in this Annual Report has been restated to give effect to such stock split, as the original filing
predated the effectiveness of the stock split.
Whole Foods Market, Inc.
Annual Report on Form 10-K
For the Fiscal Year Ended September 25, 2005
Table of Contents
Item 1. Business. 4
Item 1A. Risk Factors. 14
Item 1B. Unresolved Staff Comments. 17
Item 2. Properties. 17
Item 3. Legal Proceedings. 18
Item 4. Submission of Matters to a Vote of Security Holders. 18
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities. 19
Item 6. Selected Financial Data. 21
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. 23
Item 7A. Quantitative and Qualitative Disclosures About Market Risk. 31
Item 8. Financial Statements and Supplementary Data. 33
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. 58
Item 9A. Controls and Procedures. 58
Item 9B. Other Information. 58
Item 10. Directors and Executive Officers of the Registrant. 59
Item 11. Executive Compensation. 60
Item 12. Security Ownership of Certain Beneficial Owners and Management. 64
Item 13. Certain Relationships and Related Transactions. 64
Item 14. Principal Accounting Fees and Services. 65
Item 15. Exhibits, Financial Statement Schedules. 66
This Report on Form 10-K contains forward-looking statements within the meaning of Section 21E of the Securities and
Exchange Act of 1934 concerning our current expectations, assumptions, estimates and projections about the future. These
forward-looking statements are based on currently available operating, financial and competitive information and are subject
to risks and uncertainties that could cause our actual results to differ materially from those indicated in the forward-looking
statements. See “Item 1A. Risk Factors” for a discussion of risks and uncertainties that may affect our business.
Item 1. Business.
Whole Foods Market, Inc. owns and operates the largest chain of natural and organic food stores. Our Company mission is to
promote the vitality and well-being of all individuals by supplying the highest quality, most wholesome foods available.
Since the purity of our food and the health of our bodies are directly related to the purity and health of our environment, our
core mission is devoted to the promotion of organically grown foods, food safety concern and sustainability of our entire
eco-system. Through our growth, we have had a large and positive impact on the natural and organic foods movement
throughout the United States, helping lead the industry to nationwide acceptance over the last 25 years.
Whole Foods Market, Inc. is a Texas corporation incorporated in 1980. The Company is based in Austin, Texas and conducts
business through various wholly-owned subsidiaries. Unless otherwise specified, references to Whole Foods Market or the
Company in this Report include its consolidated subsidiaries. We operate in one reportable segment, natural and organic
We opened our first store in Austin, Texas in 1980. As of September 25, 2005, we operated 175 stores: 165 stores in 30 U.S.
states and the District of Columbia; three stores in Canada; and seven stores in the United Kingdom. Our sales have grown
rapidly through new store openings, acquisitions and comparable store sales growth, from approximately $92 million in
fiscal year 1991, excluding the effect of pooling-of-interests transactions completed since 1991, to approximately $4.7 billion
in fiscal year 2005, a compounded annual growth rate of approximately 32%. We are a Fortune 500 company, ranking 479
based on our fiscal year 2004 sales of $3.9 billion. Our stores average approximately 33,000 square feet in size and
approximately $28 million in annual sales. Our stores are supported by regional distribution centers, bakehouse facilities,
commissary kitchens, seafood-processing facilities, produce procurement centers and a coffee roasting operation.
Our goal is to become an international brand synonymous with not just natural and organic foods, but with being the best
food retailer in every community in which we are located. We believe our heavy emphasis on perishable products is helping
us reach that goal, differentiating our stores from conventional supermarkets and enabling us to attract a broader customer
base. Perishable product sales accounted for approximately 68% of our total retail sales in fiscal year 2005. We believe that
all shoppers, not just natural and organic food shoppers, appreciate great produce, dairy, meat, seafood, bakery and prepared
foods, and it is our strength of execution in perishables that has attracted many of our most loyal customers.
The Natural Products Industry
According to a leading trade publication for the industry, sales of natural products across all channels grew to $46 billion in
2004, a 7% increase over the prior year. The natural and organic products we offer in our stores include food and beverages,
dietary supplements, personal care products, household goods, and related educational products. We believe the growth in
sales of natural and organic foods is being driven by numerous factors, including:
• heightened awareness of the role that food and nutrition play in long-term health, which has led to healthier eating
• a better-educated and wealthier populace whose median age is increasing each year;
• increasing consumer concern over the purity and safety of food due to the presence of pesticide residues, growth
hormones, artificial ingredients and other chemicals, and genetically engineered ingredients; and
• environmental concerns due to the degradation of water and soil quality.
Natural foods can be defined as foods that are minimally processed, largely or completely free of artificial ingredients,
preservatives and other non-naturally occurring chemicals and as near to their whole, natural state as possible. Organic
products are grown through methods intended to support and enhance the earth’s natural balance. Generally, organic food
products are produced using:
• agricultural management practices intended to promote and enhance eco-system health;
• no genetically-engineered seeds or crops, sewage sludge, long-lasting pesticides, herbicides or fungicides;
• livestock management practices intended to promote healthy, humanely treated animals by providing organically-
grown feed, fresh air and outdoor access while using no antibiotics or growth hormones; and
• food processing practices intended to protect the integrity of the organic product and disallow irradiation,
genetically modified organisms (“GMOs”) or synthetic preservatives.
On October 21, 2002, the United States Department of Agriculture’s (“USDA”) Organic Rule was implemented into Federal
law. The Organic Rule was created to address the rapid, consistent growth of the organics industry over the past 20-plus
years and the need for a set of national organic standards to serve as clear guidelines as to what is considered organic for the
industry and its customers. Under the Organic Rule, all products labeled as “organic” in any form must now be certified by a
USDA-accredited certifying agency. Furthermore, retailers, including Whole Foods Market, that handle, store, and sell
organic products must implement measures to protect their organic integrity by:
• preventing the commingling of organic and conventional products;
• protecting organic products from contact with prohibited substances (such as sanitation and pest control products);
• labeling organic products properly and clearly; and
• keeping proper records with regard to organic handling procedures and vendor relationships.
Whole Foods Market has taken an active leadership role in the development of the national organic standards. Margaret
Wittenberg, our Vice President of Global Communications and Quality Standards, served on the National Organic Standards
Board (“NOSB”) from 1995 to 2000. The NOSB members were appointed by the Secretary of Agriculture to act as industry
advisors to the USDA’s National Organic Program, developing the standards and protocols that form the backbone of the
USDA’s Organic Rule. As the sole retail representative on the NOSB, Ms. Wittenberg contributed a broad, realistic
perspective on how the standards could work most effectively at the retail level.
Whole Foods Market has been devoted to protecting organic integrity for years, and we are pleased to have the USDA’s
Organic Rule as a guiding standard. In May 2003, Whole Foods Market became America’s first national “Certified Organic”
grocer through certification from Quality Assurance International (“QAI”), a federally recognized independent third-party
certification organization. This voluntary certification tells our customers that we have gone the extra mile by not only
following the USDA’s Organic Rule, but following a strict set of operating procedures designed to ensure that the products
we sell and label as organic are indeed organic – procedures that are not specifically required by the Organic Rule.
QAI’s Organic Certification Program for Retailers verifies businesses handle organic goods according to stringent national
guidelines, from receipt through re-packing to final sale to customers. To receive certification, retailers must agree to adhere
to a strict set of standards set forth by the USDA, submit documentation, and open their facilities to on-site inspections – all
designed to assure Americans that the chain of organic integrity is preserved. The certification is one more example of our
commitment to the promotion of organic agriculture and the integrity of the certified organic label.
Whole Foods Market is the largest retailer of natural and organic products. We believe that much of our success to date is
because we remain a uniquely mission-driven company. We are highly selective about what we sell. We believe in providing
an empowering work environment for our team members, and we are committed to sustainable agriculture. Our motto,
“Whole Foods, Whole People, Whole Planet,” emphasizes that our vision reaches far beyond just food retailing.
We obtain our products locally and from all over the world, often from small, uniquely dedicated food artisans. We strive to
offer the highest quality, least processed, most flavorful and naturally preserved foods. We believe that food in its purest
state – unadulterated by artificial additives, sweeteners, colorings and preservatives – is the best tasting and most nutritious
We recruit the best people we can to become part of our team. We empower them to make many operational decisions,
creating a respectful workplace where team members are treated fairly and are highly motivated to succeed. We look for
team members who are passionate about food but also well-rounded human beings who can play a critical role in helping to
build our stores into profitable and beneficial parts of their communities.
We believe companies, like individuals, must assume their share of responsibility for our planet. We actively support organic
farming on a global basis because we believe it is the best method for promoting sustainable agriculture and protecting the
environment and farm workers. On a local basis, we are actively involved in our communities by supporting food banks,
sponsoring neighborhood events, and contributing at least 5% of our after-tax profits in the form of cash or products to not-
Our core values reflect what is truly important to us as an organization. They are the underpinning of our corporate culture
and the soul of our Company. They transcend our size and growth rate, so regardless of how large we become, by
maintaining our core values we are able to preserve what has always been special about our Company. Our five stated core
• selling the highest quality natural and organic products available;
• satisfying and delighting our customers;
• team member happiness and excellence;
• creating wealth through profits and growth; and
• caring about our communities and our environment.
These core values speak to our belief in a balanced way of doing business. We consider all five equal in importance and
deserving of equal consideration and attention. We believe that our focus on natural and organic products, our loyal
customers, creative team members, shareholders who support our mission, and communities that welcome our participation
set us apart from other natural and conventional food retailers.
In 2005, we created two independent, non-profit organizations, the Animal Compassion FoundationTM and Whole Planet
FoundationTM, each designed to reach a larger community stakeholder. We currently have donated over $1.1 million in seed
money raised from two global “Five Percent Days,” in which five percent of all customer purchases at all Company stores on
January 25, 2005 and October 25, 2005 were donated to the foundations. The mission of the Animal Compassion Foundation
is to provide education and research services to assist and inspire ranchers and meat producers from around the world to
adopt more humane practices and achieve a higher standard of animal welfare excellence while still maintaining economic
viability. The primary focus of the Whole Planet Foundation is to improve the economic well-being of the poor in
developing countries by assisting entrepreneurship and self-employment through income-generating micro-businesses via
access to capital from micro-loans. Both foundations, which are based in Austin, Texas and have their own board of
directors, are aligned with the mission we set forth 25 years ago in terms of community involvement and responsibility. As
we have grown and are doing more business around the world, we believe it has become increasingly important for us to
extend our vision of “community” from our backyards to the global markets in which we are trading.
Whole Foods Market’s growth strategy is to expand primarily through new store openings. We have a disciplined,
opportunistic real estate and acquisition strategy, opening or acquiring stores in existing trade areas as well as new markets.
Our new stores typically range in size between 50,000 to 60,000 square feet and are located on premium real estate sites. We
have also grown through acquisitions, with approximately 24% of our existing square footage coming from acquisitions.
Because the natural foods retailing industry is highly fragmented and comprised of many smaller local and regional chains,
we may continue to pursue acquisitions of smaller chains that provide access to desirable markets, locations and experienced
team members. Such acquisitions, however, are expected to have less of an impact on our future store growth and financial
results than they have had in the past primarily due to the growing base size of the Company.
We typically relocate a small number of our stores each fiscal year to larger locations with improved visibility and parking.
For stores relocated in fiscal years 2000 through 2005, the overall average increase in size was approximately 107%. Our
historical store growth is summarized below:
2005 2004 2003 2002 2001
Stores at beginning of fiscal year 163 145 135 126 117
Stores opened 15 12 12 11 12
Acquired stores - 7 - 3 -
Relocations and closures (3) (1) (2) (5) (3)
Stores at end of fiscal year 175 163 145 135 126
Total square footage at end of fiscal year (in thousands) 5,819 5,145 4,545 4,098 3,598
As of November 9, 2005, we had signed leases for 65 stores averaging approximately 55,000 square feet in size, which is
approximately 64% larger than the average size of our existing store base. Square footage under development at November
9, 2005 was approximately 3.7 million, equal to approximately 60% of our existing store base. We currently operate seven
stores within the 60,000 to 80,000 square-foot range, with an additional 21 stores of that size in development. We are
confident about the potential future returns of these larger stores, as we believe they appeal to a broader customer base, take
longer to reach maximum capacity, and are less vulnerable to competition as they create a higher barrier to entry.
We offer a broad product selection with a strong emphasis on perishable foods designed to appeal to both natural foods and
gourmet shoppers. Most of our products are from natural food vendors; however, we do sell a limited selection of
conventional national brands that meet our quality standards.
A primary part of our Company mission is to promote vitality and well-being for all individuals by supplying the highest
quality, most wholesome foods available. We evaluate quality in terms of nutrition, freshness, appearance and taste. Our
search for quality is a never-ending process involving the careful judgment of buyers throughout the Company.
• We carefully evaluate each and every product that we sell.
• We feature foods that are free from artificial preservatives, colors, flavors and sweeteners.
• We are passionate about great tasting food and the pleasure of sharing it with each other.
• We are committed to foods that are fresh, wholesome and safe to eat.
• We seek out and promote organically grown foods.
• We strive to provide food and nutritional products that support health and well-being.
Our standards require that seafood comes from deep, clean and clear waters or from aquaculture farms where environmental
concerns are a priority, and our seafood is never treated with chlorine or other chemicals, which is common practice in
the food retailing industry. In addition, Whole Foods Market has championed innovative production standards to improve
the quality and safety of the meat and poultry sold in our stores, while also supporting the better treatment and health of
Animal welfare requirements currently mandatory for any meat and poultry sold by Whole Foods Market include:
• no antibiotics or added growth hormones;
• an annual affidavit from each producer outlining the raising and handling practices, feed, facility design,
environmental conditions, employee training, medical practices and animal welfare at the farm, in transportation and
• annual inspection of each producer by Whole Foods Market; and
• successful completion of an independent third-party food safety audit of each processing plant and a humane
slaughter audit according to a rating system developed by renowned animal welfare and facility design expert Dr.
In October 2003, we announced plans to create farm animal treatment standards that go above and beyond our existing strict
standards. The new standards of production and processing are being developed in cooperation with producers, animal
welfare advocacy groups, animal welfare scientists, and an independent third-party food safety auditor. We believe that the
needs of an animal should be the first criteria in the development of standards, with a focus on providing environments and
conditions for each species that support the animal’s natural physical needs, behavior and well-being. Products meeting the
utmost standard will be labeled “animal compassionate.” Work on our new “animal compassionate” standards started in
November 2003 with the development of enhanced animal welfare standards for ducks. In fiscal year 2005, we completed
work on enhanced standards for pigs, sheep and cattle. Our long term goal is to develop animal compassionate standards for
all the meat, poultry and fish sold in our stores.
Our product categories include, but are not limited to: produce, seafood, grocery, meat and poultry, bakery, prepared foods
and catering, specialty (beer, wine and cheese), whole body (nutritional supplements, vitamins, body care and educational
products such as books), floral, pet products and household products.
Perishable products, defined as food and other products subject to spoilage, accounted for approximately 68% of our
total retail sales in fiscal year 2005, up from approximately 57% of our total retail sales 10 years ago. We believe our
heavy emphasis on perishable products differentiates us from conventional supermarkets and helps us to attract a broader
customer base. We believe that all shoppers, not just natural and organic food shoppers, appreciate great produce, dairy,
meat, seafood, bakery and prepared foods. We believe it is our strength of execution in perishables that has attracted many of
our most loyal shoppers.
Private Label Products
Because of the relative lack of national brands within the natural products marketplace, we believe we have a unique private
label opportunity. We have taken advantage of this opportunity and over the last several years have expanded our private
label offerings, which currently feature about 1,500 SKUs and comprise four corporate brands (365 Everyday Value, Whole
Kids Organic, 365 Organic and the Whole Brands family), as well as the Authentic Food Artisan (“AFA”) program. In
addition to these nationally-driven programs, we have a number of store-made and regionally-made fresh items sold under
the Whole Foods Market label. We also offer specialty and organic coffees and teas through our Allegro Coffee Company
subsidiary. Our private label sales in grocery and nutrition accounted for approximately 15% of our total sales in those
product categories in fiscal year 2005. Total private label sales across all teams accounted for approximately 7% of our retail
sales in fiscal year 2005.
• 365 Everyday Value. In 1997, we introduced a line of products under the “365” label emphasizing everyday value.
These products meet our quality standards but are generally less expensive than the alternative products we sell. Our
qualitative and quantitative research indicates that the “365” line is a highly recognized and trusted brand with Whole
Foods Market shoppers.
• Whole Kids Organic. In 1998, we introduced the country's first organic food product line developed just for children
under the “Whole Kids” label. Whole Kids Organic offers great tasting items, from applesauce and peanut butter to pasta
sauce and string cheese, crafted expressly for a child’s discerning palate.
• 365 Organic Everyday Value. In 2002, we expanded our private label program with the introduction of our “365
Organic” line. The “365 Organic” brand provides all of the benefits of organic food at reduced prices. Certified organic
products are purchased in large quantities so that the savings may be passed on to our customers. In 2003, we expanded
this program into non-grocery departments, including a successful line of organic fresh vegetables.
• Authentic Food Artisan. In 2003, we introduced our Authentic Food Artisan (“AFA”) program. This program recognizes
distinctive products that are made using traditional methods. Potential items for the AFA program are reviewed on a
quarterly basis, specifically chosen for their superior taste and commitment to artisanal, small-scale production methods.
The line includes olive oils, cheese, wine, pasta, vinegar, rice and honey, among other items.
• Whole Brands. In September 2004, we introduced a new family of “Whole Brands,” each aligned with department-
specific quality and sourcing standards. Included under the “Whole Brands” umbrella are “Whole Kitchen” for frozen
grocery, “Whole Treat” for frozen desserts and candies, “Whole Catch” for frozen seafood items, “Whole Fields” for
produce and produce support items, “Whole Pantry” for pantry items such as flavored olive oils and vinegars, “Whole
Creamery” for cheeses, “Whole Dairy” for eggs, and “Whole Ranch” for frozen burgers and franks. These brands go
beyond the basics, offering unique items that embody our high quality standards and supplement our base value line of
365 and 365 Organic items. Items in the “Whole” family share a consistent logo format and packaging so that our
customers know each is part of a greater family.
Team Approach to Store Operations
We strive to promote a strong company culture featuring a team approach to store operations that we believe is distinctly
more empowering of employees than that of the traditional supermarket. Our domestic stores each employ between 85 and
585 team members who are organized in up to 13 teams per store, each led by a team leader. Each team within a store is
responsible for a different product category or aspect of store operations such as customer service, prepared foods, or
grocery, among other things. Together with our regional framework, we promote a decentralized team approach to store
operations in which many of the personnel, merchandising and operating decisions are made by teams at the individual store
level. Because of our management structure, an effective store team leader is critical to the success of the store. The store
team leader works closely with one or more associate store team leaders, as well as with all of the department team leaders,
to operate the store as efficiently and profitably as possible. Members of store leadership are paid a salary plus an Economic
Value Added (“EVA”™) based bonus and are eligible to receive stock options.
We believe team members are inspired by work that provides them with a greater sense of purpose and mission. For many
team members, their job with us is an extension of their personal philosophy and lifestyle. Many team members have said
they are contributing to the good of others by selling clean and nutritious foods, by contributing to long-term sustainable
agriculture and by promoting a pesticide-free and healthier environment. For the past eight years, our team members have
helped Fortune magazine select us as one of the “100 Best Companies to Work for in America.”
Every year our team members have the opportunity to complete a Morale Survey. In 2005, the overall participation rate was
80%, up significantly from 63% in 2004. Topics covered by the survey include job satisfaction, opportunity and
empowerment, pay, training and benefits. Of the team members responding in 2005, 90% agreed or strongly agreed that they
can do their best work at Whole Foods Market, and 82% agreed or strongly agreed that they are treated fairly and
respectfully at their location. Common responses to the question “What is the best thing about working at Whole Foods
Market?” included co-workers are like family, flexibility, work environment, growth and learning opportunities, the products
we sell, benefits, the team concept, and the culture of empowerment.
We strive to create a Company-wide consciousness of “shared fate” by uniting the self-interests of team members as closely
as possible to the self-interests of our shareholders. One way we reinforce this concept is through a gainsharing
program rewarding a team’s labor productivity. We also encourage stock ownership among team members through the
• Team Member Stock Option Plan. Team members are eligible for stock options through seniority, promotion or at
the discretion of senior regional or national leadership.
• Team Member Stock Purchase Plan. Team members can purchase restricted stock at a discount (or unrestricted
stock without a discount) through payroll deductions.
• Team Member 401(k) Plan. Whole Foods Market stock is an investment option within the Company’s 401(k) plan.
We do not have a standard store design model. Instead, each store’s design is customized to fit the size and configuration of
the particular location and community in which it is located. Our culture and philosophy is one of continual innovation and
experimentation, and successful experiments are voluntarily picked up and improved upon by our stores and regions. We
strive to transform food shopping from a chore into a dynamic experience by building and operating stores with colorful
décor, well-trained team members, exciting product mixes, teams of in-store chefs, ever-changing selections, samples, open
kitchens, scratch bakeries, hand-stacked produce, prepared foods stations and European-style charcuterie departments. To
further a sense of community and interaction with customers, our stores typically include sit-down eating areas, customer
comment boards and customer service booths. We have “Take Action” centers for our customers who want to be informed
on important issues relative to environmental, legislative, food safety and product quality issues that can directly affect our
customers’ health and well-being. In addition, some stores offer special services such as massage, valet parking and home
delivery. We believe our stores play a unique role as a third place, besides the home and office, where people can gather,
interact and learn while at the same time discovering the many joys of eating and sharing food.
Most of our stores are located in high-traffic shopping areas and are either freestanding or in a strip center. We also have a
small number of urban stores located in high-density, mixed-use projects. In selecting store locations, we use an internally
developed model to analyze potential markets based on various criteria such as education levels, population density and
income levels. We primarily seek to open large format stores, which typically range in size between 50,000 to 60,000 square
feet and are located on premier real estate sites, often in urban, high-population locales. After we have selected a target site,
our development group does a comprehensive site study and sales projection. Each project must meet an internal EVA hurdle
return, which is generally cumulative positive EVA within five to seven years.
For stores opened over the past 5 years, approximately 60% opened within 12 to 24 months after the lease signing
announcement, with a median length of time of 19 months. The required cash investment for new stores varies depending on
the size of the store, geographic location, degree of work performed by the landlord and complexity of site development
issues. For stores opened during the past two fiscal years, our new store investment has averaged approximately $11.6
million excluding pre-opening expenses, which have averaged approximately $1.5 million per store.
Purchasing and Distribution
Our buyers purchase products for retail sale from local, regional and international wholesale suppliers and vendors. Over the
last few years, we have shifted the majority of our purchasing operations from the store to the regional and national level.
Increased purchasing on a regional and national level enables us to negotiate better volume discounts with major vendors and
distributors, and allows regional and store buyers to focus on local products and the unique product mix necessary to keep a
neighborhood market feel in our stores. We own two produce procurement centers which facilitate the procurement and
distribution of the majority of the produce we sell. In addition, we operate three seafood processing and distribution facilities
and a specialty coffee roaster and distributor. We also have seven regional commissaries and 11 bakehouse facilities, all of
which distribute products to our stores. Other products are typically procured through a combination of specialty wholesalers
and direct distributors. We operate 10 regional distribution centers, distributing a full range of products to our stores across
the U.S., Canada and the United Kingdom.
United Natural Foods is our single largest supplier, accounting for approximately 22% of our total purchases in fiscal
We spend less on advertising and marketing than conventional supermarkets – approximately 0.4% of our total sales in fiscal
year 2005, instead relying primarily on word-of-mouth recommendations from our customers. We allocate our marketing
budget among region-wide programs, our individual stores’ marketing efforts, and a national brand awareness initiative
focusing primarily on national and major market public relations and consumer research. Our stores spend most of their
marketing budgets on in-store marketing-related activities, including signage and in-store events such as taste fairs, classes,
tours and product samplings. To create goodwill and develop a high profile within the community, each store also has a
separate budget for making contributions to a variety of philanthropic and community activities. We presently contribute at
least 5% of our after-tax profits in the form of cash or products to not-for-profit organizations.
One of our core values as a company is to satisfy and delight our customers. We want to meet or exceed their expectations on
every shopping trip. We believe that by doing so we turn customers into advocates for our business, who do more than shop
with us; they talk about Whole Foods Market to their friends and others. We want to serve our customers competently,
efficiently, and knowledgeably. We believe that we generate greater appreciation and loyalty from our customers by
educating them about natural and organic foods, health, nutrition and the environment through our in-store “Take Action”
centers as well as on our corporate Web site at www.wholefoodsmarket.com, which features hundreds of recipes and a
library of information about environmental, legislative, food safety and product quality issues.
As of September 25, 2005, we had approximately 38,000 team members, including 32,900 full-time, 3,300 part-time and
1,800 temporary team members. We are proud that more than 90% of our permanent team members are full-time team
members, which we believe is very high for the food retailing industry. All of our full-time and part-time team members are
eligible to receive stock options. In addition, team members are encouraged to take an active role in choosing their benefits
by participating in a Company-wide benefits vote every three years. Our second Company-wide benefits vote will be held in
fiscal year 2006.
One of our core values is team member happiness and excellence, and for the past eight years, our team members have
helped Whole Foods Market be selected as one of Fortune magazine’s “100 Best Companies to Work for in America.” In
scoring companies, Fortune places the greatest weight (two-thirds of the total) on responses to a random survey of
employees, with the remainder being Fortune’s evaluation of each company’s benefits and practices. We are the only
national food retailer to make the list, and we are one of only 22 companies to make the list every year since its inception.
Unions may from time to time attempt to organize our team members or portions of our team member base at certain stores
or non-retail facilities. In addition, our new and existing stores have been subjected to informational picketing and negative
publicity campaigns from time to time by members of various local trade unions. At present, Whole Foods Market is not
subject to any significant activities by any trade unions and none of our team members are represented by unions.
Economic Value Added
We use Economic Value Added (“EVA”™) to evaluate our business decisions and as a basis for determining incentive
compensation. In its simplest definition, EVA is equivalent to net operating profits after taxes minus a charge for the cost of
invested capital necessary to generate those profits. We believe that one of our core strengths is our decentralized culture,
where decisions are made at the store level, close to the customer. We believe this is one of our strongest competitive
advantages and that EVA is the best financial framework that team members can use to help make decisions that create
sustainable shareholder value.
We use EVA extensively for capital investment decisions, including evaluating new store real estate decisions and store
remodeling proposals. We turn down projects that we believe will not add long-term value to the Company. The EVA
decision-making model also enhances operating decisions in stores. Our emphasis is on EVA improvement, as we want to
challenge our teams to continue to innovate and grow EVA in new ways. We believe that opportunities always exist to
increase sales and margins, to lower operating expenses and to make investments that add value in ways that benefit all of
our stakeholders. We believe that focusing on EVA improvement encourages continuous improvement of our business.
Over 500 leaders throughout the Company are on EVA-based incentive compensation plans, of which the primary measure is
EVA improvement. EVA-based plans cover our senior executive leadership, regional leadership and the store leadership
team in all stores. Incentive compensation for each of these groups is determined based on relevant EVA measures at
different levels, including the total company level, the regional level, the store or facility level, and the team level. We
believe using EVA in a multi-dimensional approach best measures the results of decisions made at different levels of the
Company. We expect EVA will remain a significant component of our compensation structure throughout the Company in
the coming years.
Information about our EVA financial results is not presented because of rules adopted by the Securities and Exchange
Commission (“SEC”) regarding non-GAAP financial measures. Additional information about our EVA financial results
is available on our corporate Web site at www.wholefoodsmarket.com and is not incorporated by reference into this
Food retailing is a large, intensely competitive industry. Our competition varies from region to region and includes local,
regional and national conventional and specialty supermarkets, smaller specialty stores, and restaurants, each of which
competes with us on the basis of price, quality, service or a combination of these factors. We believe our focus on quality
and service at competitive prices differentiates us in this segmented marketplace.
Natural and organic foods are one of the fastest growing segments of food retailing today. Most supermarkets offer at least a
limited selection of these products, while some have chosen to expand their selection more aggressively. We believe it works
to our benefit for conventional supermarkets to offer natural and organic products for two reasons: first, it helps fulfill our
company mission to improve the health, well-being and healing of both people and the planet, and second, it helps create
new customers for us by creating a gateway experience. As more people are exposed to the benefits of natural and organic
products, they are more likely to become Whole Foods Market customers since we are the category leader for natural and
organic products, offering what we believe is the largest selection and most informed customer service at competitive prices.
We believe our continued strong comparable store sales growth is evidence of the gateway experience.
Government and Public Affairs
Our stores are subject to various federal, state and local laws, regulations and administrative practices affecting our business.
We must comply with provisions regulating health and sanitation standards, food labeling, equal employment, minimum
wages and licensing for the sale of food and, in some stores, alcoholic beverages.
The manufacturing, processing, formulating, packaging, labeling and advertising of products are subject to regulation by
various federal agencies including the Food and Drug Administration (“FDA”), the Federal Trade Commission (“FTC”), the
Consumer Product Safety Commission (“CPSC”), the United States Department of Agriculture (“USDA”) and the
Environmental Protection Agency (“EPA”). The composition and labeling of nutritional supplements are most actively
regulated by the FDA under the provisions of the Federal Food, Drug and Cosmetic Act (“FFDC Act”). The FFDC Act has
been revised in recent years with respect to dietary supplements by the Nutrition Labeling and Education Act and by the
Dietary Supplement Health and Education Act. We believe we are in material compliance with product labeling
Margaret Wittenberg, our Vice President of Marketing and Public Affairs, has served on numerous government boards and
industry committees to create and strengthen the USDA’s Organic Rule and to counsel the USDA and the EPA on pesticide
tolerance levels, the use and labeling of GMOs in the food chain, and preserving marine fisheries.
Trademarks owned by the Company or its subsidiaries include, but are not limited to: “Whole Foods Market,” “365
Everyday Value,” “365 Organic Everyday Value,” “Allegro Coffee Company,” “Bread & Circus,” “Fresh Fields,”
“Merchant of Vino,” “Mrs. Gooch’s,” “Wellspring,” “Harry’s Farmers Market,” “Fresh & Wild,” “AFA,” “Whole Kids
Organic,” “Whole Kitchen,” “Whole Treat,” “Whole Catch,” “Whole Fields,” “Whole Ranch,” “Whole Baby,” “Whole
Cuisine,” “Whole Pantry,” and “Whole Foods, Whole People, Whole Planet.” The Company or its subsidiaries also holds
registrations or applications, and maintains common law trademark rights for stylized logos and brand names for products
created by Allegro Coffee Company and many of its private label products.
Our corporate Web site at www.wholefoodsmarket.com provides detailed information about our company and history,
product offerings and store locations, with hundreds of recipes and a library of information about environmental, legislative,
health, food safety and product quality issues. Access to the Company’s SEC filings, including annual reports on Form 10-K,
quarterly reports on Form 10-Q, current reports on Form 8-K, Section 16 filings, and all amendments to those reports is also
available through our Web site free of charge, as soon as reasonably practicable after these reports are filed electronically
with the SEC. As with our stores, the focus of our Web site is customer service. We believe our Web site provides us with an
opportunity to further our relationships with customers, suppliers and investors, to educate them on a variety of issues, and to
improve our service levels.
We have included our Web site address only as an inactive textual reference. The information contained on our Web site is
not incorporated by reference into this Report on Form 10-K.
Executive Officers of the Registrant
The following table sets forth the name, age and position of each of the persons who was serving as an executive officer of
the Company as of November 30, 2005:
Name Age Position
John P. Mackey 52 Chairman of the Board and Chief Executive Officer
A.C. Gallo 52 Co-President and Chief Operating Officer
Walter Robb 52 Co-President and Chief Operating Officer
Glenda Flanagan Chamberlain 52 Executive Vice President and Chief Financial Officer
James P. Sud 53 Executive Vice President of Growth and Business Development
Lee Valkenaar 49 Executive Vice President of Global Support
John P. Mackey, co-founder of the Company, has served as Chairman of the Board and Chief Executive Officer since 1980.
Mr. Mackey also served as President of the Company from July 2001 through September 2004.
A.C. Gallo has served as Co-President of the Company since September 2004 and as Chief Operating Officer since
December 2003. Mr. Gallo has held various positions with the Company and with Bread & Circus, Inc., which was acquired
by the Company in October 1992, including Vice President and President of the North Atlantic Region, and Executive Vice
President of Operations.
Walter Robb has served as Co-President of the Company since September 2004 and as Chief Operating Officer since
December 2003. Since joining the Company in 1991, Mr. Robb has also served as Store Team Leader, President of the
Northern Pacific Region, and Executive Vice President of Operations.
Glenda Flanagan Chamberlain has served as Executive Vice President and Chief Financial Officer of the Company since
James P. Sud has served as Executive Vice President of Growth and Business Development since February 2001. Mr. Sud
joined the Company in May 1997 and served as Vice President and Chief Operating Officer until February 2001. Mr. Sud
served as a director of the Company from 1980 to 1997.
Lee Valkenaar has served as Executive Vice President of Global Support since September 2004. Mr. Valkenaar has held
various positions with the Company since 1987, including Store Team Leader, Vice President and President of the Southwest
Region, and President of the Mid-Atlantic Region.
The following table sets forth the name, age and position of each of the persons who was serving as a regional president of
the Company as of November 30, 2005:
Name Age Position
Scott Allshouse 43 President, South Region
Michael Besancon 59 President, Southern Pacific Region
Patrick Bradley 45 President, Midwest Region
Mark Dixon 43 President, Southwest Region
Anthony Gilmore 45 President, Northern California Region
David Lannon 39 President, North Atlantic Region
Ron Megahan 35 President, Pacific Northwest Region
Kenneth Meyer 37 President, Mid-Atlantic Region
Christina Minardi 39 President, Northeast Region
Juan Nunez 47 President, Florida Region
William Paradise 45 President, Rocky Mountain Region
Scott Allshouse has served as President of the South Region since November 2004. Mr. Allshouse has held various positions
since joining the Company in 2000, including Store Team Leader and Vice President of the South Region.
Michael Besancon has served as President of the Southern Pacific Region since February 2001. Mr. Besancon has held
various positions with the Company since 1995, including Purchasing Director, Vice President of the Southern Pacific
Region and President of the Mid-Atlantic Region.
Patrick Bradley has served as President of the Midwest Region since November 2004. Mr. Bradley has held various
positions with the Company and with Mrs. Gooch’s Natural Food Markets, Inc., which was acquired by the Company in
September 1993, including Store Team Leader and Vice President of the Southern Pacific Region.
Mark Dixon has served as President of the Southwest Region since October 2004. Mr. Dixon has held various positions with
the Company since 1984, including Store Team Leader and Vice President of the Southwest Region.
Anthony Gilmore has served as President of the Northern California region since September 2004. Mr. Gilmore has held
various positions with the Company since 1996, including Store Team Leader, Vice President and President of the Southwest
Region, and President of the Midwest Region.
David Lannon has served as President of the North Atlantic Region since March 2001. Mr. Lannon has held various
positions with the Company and with Bread & Circus, Inc., which was acquired by the Company in October 1992, including
Store Team Leader, Director of Store Operations and Vice President of the North Atlantic Region.
Ron Megahan has served as President of the Pacific Northwest Region since September 2004. Mr. Megahan has held various
positions with the Company since 1989, including Store Team Leader and President of the Northern Pacific Region.
Kenneth Meyer has served as President of the Mid-Atlantic Region since October 2004. Mr. Meyer has held various
positions with the Company and with Fresh Fields Market, which was acquired by the Company in August 1996, including
Store Team Leader, Vice President of the Southwest Region, and President of the South Region.
Christina Minardi has served as President of the Northeast Region since September 2005. Ms. Minardi has held various
positions with the Company and with Fresh Fields Market, which was acquired by the Company in August 1996, including
Store Team Leader and Vice President of the North Atlantic Region.
Juan Nunez has served as President of the Florida Region since September 1998. Mr. Nunez has held various positions with
the Company and with Mrs. Gooch’s Natural Food Markets, Inc., which was acquired by the Company in September 1993,
including Store Team Leader, Director of Store Operations and Vice President of the Southwest Region.
William Paradise has served as President of the Rocky Mountain Region since September 2004. Mr. Paradise has held
various positions with the Company since 1990, including Store Team Leader, Vice President of the Northern Pacific
Region, and Vice President and President of the Southwest Region.
Item 1A. Risk Factors.
We wish to caution you that there are risks and uncertainties that could cause our actual results to be materially different
from those indicated by forward-looking statements that we make from time to time in filings with the Securities and
Exchange Commission, news releases, reports, proxy statements, registration statements and other written communications,
as well as oral forward-looking statements made from time to time by representatives of the Company. These risks and
uncertainties include, but are not limited to, the risks described below. Additional risks and uncertainties not presently known
to us or that we currently deem immaterial also may impair our business operations. The cautionary statements below discuss
important factors that could cause our business, financial condition, operating results and cash flows to be materially
adversely affected. The Company does not undertake any obligation to update forward-looking statements.
Our Growth Is Partially Dependent on New Store Openings and Acquisitions
Our strategy is to expand through a combination of new store openings and, to a lesser extent, acquisitions of existing stores.
Successful implementation of this strategy is contingent on numerous conditions, some of which are described below, and
there can be no assurance that our expansion strategy can be successfully executed.
Our continued growth depends to a significant degree on our ability to open or acquire new stores in existing and new
markets and to operate these stores successfully. Our expansion strategy is dependent on finding suitable locations, and we
face intense competition from other retailers for such sites. We may not be able to timely open new stores or operate them
successfully. In addition, we may not be able to successfully hire and train new team members or integrate those team
members into the programs and policies of the Company. We may not be able to adapt our distribution, management
information and other operating systems to adequately supply products to new stores at competitive prices so that we can
operate the stores in a successful and profitable manner.
There can be no assurance that we will continue to grow through acquisitions. For the acquisitions that we do make, we may
not be able to successfully integrate those businesses into our operations and support systems, or the operations of acquired
businesses may be adversely affected by the introduction of our decentralized operational approach. The integration of
acquired operations into our operations requires the dedication of management resources that may temporarily detract
attention from our day-to-day business.
We May Experience Significant Fluctuations in Our Comparable Store Sales
Our comparable store sales in the future could fluctuate or be lower than our historical average for many reasons including
new and acquired stores entering into the comparable store base, the opening of new stores that cannibalize store sales in
existing markets, increased competition, price changes in response to competitive factors, possible supply shortages, and
cycling against above-average sales results in the prior year. Results of operations may be materially impacted by
fluctuations in our comparable store sales as it becomes more difficult to leverage expenses at a lower level of sales.
We May Experience Significant Fluctuations in Our Quarterly Operating Results
Our quarterly operating results could fluctuate for many reasons, including losses from new stores, variations in the mix of
product sales, price changes in response to competitive factors, increases in store operating costs, possible supply shortages,
extreme weather-related disruptions, and potential uninsured casualty losses or other losses. In addition, our quarterly
operating results may fluctuate significantly as the result of the timing of new store openings, the timing of acquisitions, the
range of operating results generated from newly opened stores and changes in estimates associated with the disposal of
discontinued operations. Quarter-to-quarter comparisons of results of operations have been and may be materially impacted
by the timing of new store openings.
Increased Competition May Have an Adverse Effect on Profitability
Our competitors currently include other natural foods supermarkets, conventional and specialty supermarkets, other natural
foods stores, small specialty stores and restaurants. These businesses compete with us in one or more product categories. In
addition, some traditional and specialty supermarkets are expanding more aggressively in marketing a range of natural foods,
thereby competing directly with us for products, customers and locations. Some of these potential competitors may have
been in business longer or may have greater financial or marketing resources than we do and may be able to devote greater
resources to sourcing, promoting and selling their products. Increased competition may have an adverse effect on
profitability as the result of lower sales, lower gross profits and/or greater operating costs such as marketing.
Our Business May be Sensitive to Economic Conditions that Impact Consumer Spending
Our results of operations may be sensitive to changes in overall economic conditions that impact consumer spending,
including discretionary spending. Future economic conditions affecting disposable consumer income such as employment
levels, business conditions, interest rates and tax rates could reduce consumer spending or cause consumers to shift their
spending to our competitors. A general reduction in the level of discretionary spending or shifts in consumer discretionary
spending to our competitors could adversely affect our growth and profitability.
Legal Proceedings Could Materially Impact Our Results
From time to time, we are party to legal proceedings including matters involving personnel and employment issues, personal
injury, intellectual property and other proceedings arising in the ordinary course of business. Although not currently
anticipated by management, our results could be materially impacted by the decisions and expenses related to pending or
We May Be Subject to Product Liability Claims if People Are Harmed By the Products We Sell
There is increasing governmental scrutiny of and public awareness regarding food safety. We believe that many customers
choose to shop our stores because of their interest in health, nutrition and food safety. We believe that our customers hold us
to a higher food safety standard than conventional supermarkets. The real or perceived sale of contaminated food products by
us could result in product liability claims, the settlement or outcome of which might have a material adverse effect on our
sales and operations.
The Loss of Key Management Could Negatively Affect Our Business
We are dependent upon a number of key management and other team members. If we were to lose the services of a
significant number of key team members within a short period of time, this could have a material adverse effect on our
operations. We do not maintain key person insurance on any team member. Our continued success is also dependent upon
our ability to attract and retain qualified team members to meet our future growth needs. We face intense competition for
qualified team members, many of whom are subject to offers from competing employers. We may not be able to attract and
retain necessary team members to operate our business.
Union Attempts to Organize Our Team Members and Informational Picketing May Disrupt Our Business
Unions have from time to time attempted to organize our team members or portions of our team member base at certain
stores and non-retail facilities. Responding to such organization attempts requires substantial management and team member
time and can be disruptive to operations. In addition, our new and existing stores have from time to time been subjected to
informational picketing and negative publicity campaigns by members of various local trade unions. Any of these union
activities may have a negative financial effect on a store, facility or the Company as a whole.
Unfavorable Changes in Government Regulation Could Harm Our Business
Our stores are subject to various federal, state and local laws, regulations and administrative practices affecting our business,
and we must comply with provisions regulating health and sanitation standards, food labeling, equal employment, minimum
wages and licensing for the sale of food and, in some stores, alcoholic beverages. Our new store openings could be delayed
or prevented or our existing stores could be impacted by difficulties or failures in our ability to obtain or maintain required
approvals or licenses.
The manufacturing, processing, formulating, packaging, labeling and advertising of products are subject to regulation by
various federal agencies including the FDA, FTC, CPSC, USDA and EPA. The composition and labeling of nutritional
supplements are most actively regulated by the FDA under the provisions of the FFDC Act. The FFDC Act has been revised
in recent years with respect to dietary supplements by the Nutrition Labeling and Education Act and by the Dietary
Supplement Health and Education Act.
The USDA’s Organic Rule, implemented into federal law on October 21, 2002, should facilitate interstate commerce and the
marketing of fresh and processed food that is organically produced and should also provide an assurance to our customers
that such products meet consistent, uniform standards. Compliance with this rule might pose a significant burden on some of
our suppliers, which may cause a disruption in some of our product offerings.
We cannot predict the nature of future laws, regulations, interpretations or applications, or determine what effect either
additional government regulations or administrative orders, when and if promulgated, or disparate federal, state and local
regulatory schemes would have on our business in the future. They could, however, require the reformulation of certain
products to meet new standards, the recall or discontinuance of certain products not able to be reformulated, additional
record keeping, expanded documentation of the properties of certain products, expanded or different labeling and/or
scientific substantiation. Any or all of such requirements could have an adverse effect on our results of operations and
Changes in the Availability of Quality Natural and Organic Products Could Impact Our Business
There is no assurance that quality natural and organic products will be available to meet our future needs. If conventional
supermarkets increase their natural and organic product offerings or if new laws require the reformulation of certain products
to meet tougher standards, the supply of these products may be constrained. Any significant disruption in the supply of
quality natural and organic products could have a material impact on our overall sales and cost of goods.
Perishable Foods Product Losses Could Materially Impact Our Results
We believe our stores more heavily emphasize perishable products than conventional supermarket stores. Perishable products
accounted for approximately 68% of our total retail sales in fiscal year 2005. The Company’s emphasis on perishable
products may result in significant product inventory losses in the event of extended power outages, natural disasters or other
Our Stock Price Is Volatile
The market price of our common stock could be subject to significant fluctuation in response to various market factors and
events. These market factors and events include variations in our earnings results, changes in earnings estimates by securities
analysts, publicity regarding us, our competitors, the natural products industry generally, new statutes or regulations or
changes in the interpretation of existing statutes or regulations affecting the natural products industry specifically, sales of
substantial amounts of common stock in the public market or the perception that such sales could occur and other factors. In
addition, the stock market in recent years has experienced broad price and volume fluctuations that often have been unrelated
to the operating performance of particular companies. These market fluctuations also may adversely affect the market price
of our common stock.
Changes in the Number of Stock Option Exercises Could Impact Our Cash Flow
Our cash flow from the exercise of team member stock options may be adversely affected in the future by fluctuations in the
market price of our common stock, changes in income tax law, and changes in the number of stock options we grant.
Capital Needed for Expansion May Not Be Available
The acquisition of existing stores, the opening of new stores, and the development of new production and distribution
facilities require significant amounts of capital. In the past, our growth has been funded primarily through proceeds from
public offerings, bank debt, private placements of debt, internally generated cash flow, and proceeds from stock option
exercises. These and other sources of capital may not be available to us in the future. In addition, restrictive covenants that
may be imposed by our lenders may restrict our ability to fund our growth.
Information System Upgrades or Integrations May Disrupt Our Operations or Financial Reporting
We continually evaluate and upgrade our management information systems. We have completed a number of acquisitions in
recent years, and the information systems at some of the acquired operations have not been fully integrated with our
information systems. Although we do not anticipate any disruption in our operations or financial reporting as a result of
system upgrades or system integrations, there can be no assurance that such disruption will not occur or that the desired
benefits from the system upgrades will be realized.
We May Not Be Able to Adequately Protect Our Intellectual Property Rights
We rely on a combination of trademark, trade secret and copyright law and internal procedures and nondisclosure
agreements to protect our intellectual property. There can be no assurance that our intellectual property rights can be
successfully asserted in the future or will not be invalidated, circumvented or challenged. In addition, the laws of certain
foreign countries in which our products may be produced or sold do not protect our intellectual property rights to the same
extent as the laws of the United States. Failure to protect our proprietary information could have a material adverse effect on
our business, results of operations and financial condition.
Self-Insurance Plan Claims Could Materially Impact Our Results
The Company uses a combination of insurance and self-insurance plans to provide for the potential liabilities for workers’
compensation, general liability, property insurance, director and officers’ liability insurance, vehicle liability and employee
health care benefits. Liabilities associated with the risks that are retained by the Company are estimated, in part, by
considering historical claims experience, demographic factors, severity factors and other actuarial assumptions. Although not
currently anticipated by management, our results could be materially impacted by claims and other expenses related to such
plans if future occurrences and claims differ from these assumptions and historical trends.
Effective Tax Rate Changes and Results of Examinations by Taxing Authorities Could Materially Impact Our Results
Our future effective tax rates could be adversely affected by earnings being lower than anticipated in states or countries
where we have lower statutory rates and higher than anticipated in states or countries where we have higher statutory rates,
by changes in the valuation of our deferred tax assets and liabilities, or by changes in tax laws or interpretations thereof. In
addition, we are subject to periodic audits and examinations by the Internal Revenue Service (“IRS”) and other state and
local taxing authorities. Although not currently anticipated by management, our results could be materially impacted by the
determinations and expenses related to these and other proceedings by the IRS and other state and local taxing authorities.
Item 1B. Unresolved Staff Comments.
Item 2. Properties.
As of September 25, 2005, we operated 175 stores: 165 stores in 30 U.S. states and the District of Columbia; three stores in
Canada; and seven stores in the United Kingdom. We own five stores in Berkeley and Atlanta, and we own land for future
store locations in Portland, ME and Brooklyn, NY. We also own certain non-retail facilities in Atlanta, a building in Austin,
Texas which houses a bookstore and previously housed one of our stores and former corporate headquarters, and a
distribution center in Connecticut. The underlying property in Austin is leased from a third party under a ground lease which
has a remaining base term of approximately eight years plus 10 options to renew for five years each. All other stores,
distribution centers, bakehouses and administrative facilities are leased, with expiration dates ranging from one to 35 years.
We have options to renew most of our leases in five-year increments with renewal periods ranging from five to 50 years.
The following table shows the number of our stores by state, the District of Columbia, Canada and the United Kingdom as of
September 25, 2005:
Number Number Number
Location of Stores Location of Stores Location of Stores
Arizona 2 Louisiana 3 North Carolina 5
California 39 Maryland 7 Ohio 1
Colorado 6 Massachusetts 16 Oregon 1
Canada 3 Michigan 4 Pennsylvania 7
Connecticut 1 Minnesota 2 Rhode Island 2
District of Columbia 3 Missouri 1 South Carolina 1
Florida 7 Nebraska 1 Texas 13
Georgia 6 Nevada 1 United Kingdom 7
Illinois 9 New Jersey 8 Virginia 7
Kansas 1 New Mexico 2 Washington 2
Kentucky 1 New York 5 Wisconsin 1
Item 3. Legal Proceedings.
From time to time we are a party to legal proceedings including matters involving personnel and employment issues,
personal injury, intellectual property and other proceedings arising in the ordinary course of business which have not resulted
in any material losses to date. Although not currently anticipated by management, our results could be materially impacted
by the decisions and expenses related to pending or future proceedings.
Item 4. Submission of Matters to a Vote of Security Holders.
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of
Whole Foods Market’s common stock is traded on the NASDAQ National Market under the symbol WFMI.
The following sets forth the intra-day quarterly high and low sale prices of the Company's common stock for fiscal years
2005 and 2004:
September 27, 2004 to January 16, 2005 $ 97.48 $ 79.03
January 17, 2005 to April 10, 2005 106.78 88.28
April 11, 2005 to July 3, 2005 122.92 96.00
July 4, 2005 to September 25, 2005 139.69 117.00
September 29, 2003 to January 18, 2004 $ 71.83 $ 53.47
January 19, 2003 to April 11, 2004 79.24 66.42
April 12, 2004 to July 4, 2004 96.74 73.50
July 5, 2004 to September 26, 2004 96.00 73.21
As of November 20, 2005, there were 1,610 holders of record of Whole Foods Market’s common stock, and the closing
stock price was $144.59.
Following is a summary of dividends declared in fiscal years 2005 and 2004 (in thousands, except per share amounts):
Date of Dividend Date of Date of Total
Declaration per Share Record Payment Amount
November 10, 2004 $0.19 January 7, 2005 January 17, 2005 $12,088
April 5, 2005 0.25 April 15, 2005 April 25, 2005 16,345
June 7, 2005 0.25 July 15, 2005 July 25, 2005 16,834
September 14, 2005 0.25 October 14, 2005 October 24, 2005 17,208 (1)
November 12, 2003 $0.15 January 6, 2004 January 16, 2004 $9,079
March 22, 2004 0.15 April 9, 2004 April 19, 2004 9,234
June 29, 2004 0.15 July 9, 2004 July 19, 2004 9,415
September 22, 2004 0.15 October 8, 2004 October 18, 2004 9,417
(1) Dividends accrued at September 25, 2005
On November 9, 2005, the Company’s Board of Directors approved a 20% increase in the Company's quarterly dividend to
$0.30 per share and a special dividend of $4.00 per share, both payable on January 23, 2006 to shareholders of record on
January 13, 2006. These dividend amounts do not reflect the effect of the future two-for-one stock split announced on
November 9, 2005. The Company will pay future dividends at the discretion of the Board of Directors. The continuation of
these payments, the amount of such dividends, and the form in which the dividends are paid (cash or stock) depend on many
factors, including the results of operations and the financial condition of the Company. Subject to these qualifications, the
Company currently expects to pay dividends on a quarterly basis.
On November 9, 2005, the Company’s Board of Directors approved a stock repurchase program of up to $200 million over
the next four years. The specific timing and repurchase amounts will vary based on market conditions, securities law
limitations and other factors and will be made using the Company's available cash resources. The repurchase program may
be suspended or discontinued at any time without prior notice.
On November 9, 2005, the Company’s Board of Directors approved a two-for-one stock split to be distributed on December
27, 2005 to shareholders of record at the close of business on December 12, 2005. The stock split will be effected in the form
of a stock dividend. Shareholders will receive one additional share of Whole Foods Market common stock for each share
owned. All shares reserved for issuance pursuant to the Company's stock option and stock purchase plans will be
automatically increased by the same proportion. In addition, shares subject to outstanding options or other rights to acquire
the Company's stock and the exercise price for such shares will be adjusted proportionately. Dividends announced on
November 9, 2005 will also be adjusted proportionally. No adjustments have been made to share and per share amounts in
the accompanying financial statements and applicable disclosures for the effects of this future stock split.
On January 31, 2004, the Company issued 238,735 shares of Company common stock, worth approximately $16 million, in a
transaction that was exempt from the registration requirements of the Securities Act, to persons reasonably believed to be
“accredited investors” (as defined in Regulation D) and paid additional cash to acquire Fresh & Wild Holdings Limited. The
Company later filed a Registration Statement under the Securities Act to permit the resale of the Company shares.
The following table summarizes information about our Company’s equity compensation plans by type as of September 25,
2005 (in thousands, except per share amounts):
Options Average for Future
Plan Category Outstanding Exercise Price Issuance
Approved by security holders 11,273 $89.15 3,864
Not approved by security holders - - -
Total 11,273 $89.15 3,864
No repurchases of the Company’s equity securities were made during the fourth quarter of fiscal year 2005.
Item 6. Selected Financial Data.
Whole Foods Market, Inc.
Summary Financial Information
(In thousands, except per share amounts and operating data)
The following selected financial data are derived from the Company’s consolidated financial statements and should be read
in conjunction with “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations” and “Item 8. Financial Statements and Supplementary Data.” Selected financial data have been adjusted to
reflect the early adoption and retrospective application of a lease accounting change that is further discussed in Note 3 to the
consolidated financial statements, “Lease Accounting Change” in “Item 8. Financial Statements and Supplementary Data.”
Sept. 25, Sept. 26, Sept. 28, Sept. 29, Sept. 30,
2005 2004 2003 2002 2001
Consolidated Statements of Operations Data (1)
Sales $4,701,289 $3,864,950 $3,148,593 $2,690,475 $2,272,231
Cost of goods sold and occupancy costs 3,052,184 2,523,816 2,070,334 1,758,281 1,482,828
Gross profit 1,649,105 1,341,134 1,078,259 932,194 789,403
Direct store expenses 1,223,473 986,040 794,422 677,404 575,957
General and administrative expenses 158,864 119,800 100,693 95,871 82,440
Pre-opening and relocation costs 37,035 18,648 15,765 17,934 13,993
Store closure and asset disposal costs - - - - 9,425
Goodwill amortization - - - - 3,129
Operating income 229,733 216,646 167,379 140,985 104,459
Other income (expense):
Interest expense (2,223) (7,249) (8,114) (10,384) (17,891)
Investment and other income 9,623 6,456 5,593 2,056 1,628
Income from continuing operations before income
taxes and equity in losses of unconsolidated affiliates 237,133 215,853 164,858 132,657 88,196
Provision for income taxes 100,782 86,341 65,943 53,063 35,278
Equity in losses of unconsolidated affiliates - - - - 5,626
Income from continuing operations 136,351 129,512 98,915 79,594 47,292
Income from discontinued operations, net of
income taxes - - - - 16,233
Net income $ 136,351 $ 129,512 $ 98,915 $ 79,594 $ 63,525
Basic earnings per share:
Income from continuing operations $ 2.10 $ 2.11 $ 1.68 $ 1.41 $ 0.88
Income from discontinued operations,
net of income taxes - - - - 0.30
Net income $ 2.10 $ 2.11 $ 1.68 $ 1.41 $ 1.18
Weighted average shares outstanding 65,045 61,324 59,035 56,385 53,664
Diluted earnings per share:
Income from continuing operations $ 1.98 $ 1.98 $ 1.58 $ 1.32 $ 0.84
Income from discontinued operations,
net of income taxes - - - - 0.29
Net income $ 1.98 1.98 $ 1.58 $ 1.32 $ 1.13
Weighted average shares outstanding, diluted basis 69,975 67,727 65,330 63,340 56,185
Dividends declared per share $ 0.94 $ 0.60 $ - $ - $ -
Whole Foods Market, Inc.
Summary Financial Information (continued)
(In thousands, except per share amounts and operating data)
Sept. 25, Sept. 26, Sept. 28, Sept. 29, Sept. 30,
2005 2004 2003 2002 2001
Consolidated Balance Sheets Data
Net working capital $ 254,146 $ 151,147 $ 121,574 $ (4,157) $ (10,896)
Total assets 1,889,296 1,521,006 1,213,568 959,937 842,976
Long-term debt (including current maturities) 18,864 170,743 168,715 167,741 256,649
Shareholders’ equity 1,365,676 949,638 744,976 562,658 387,826
Number of stores at end of fiscal year 175 163 145 135 126
Average store size (gross square footage) 33,000 32,000 31,000 31,000 29,000
Average weekly sales per store $ 537,000 $ 482,000 $ 424,000 $ 393,000 $ 353,000
Comparable store sales increase (2) 12.8% 14.9% 8.6% 10.0% 9.2%
Identical store sales increase (2) 11.5% 14.5% 8.1% 8.7% 8.0%
(1) Fiscal years 2005, 2004, 2003 and 2002 were 52-week years and fiscal year 2001 was a 53-week year.
(2) Sales of a store are deemed to be “comparable” commencing in the fifty-third full week after the store was opened
or acquired. Identical store sales exclude sales for remodels with expansions of square footage greater than 20%
and relocations. Stores closed for eight or more days due to unusual events such as fires, snowstorms or hurricanes
are excluded from the comparable and identical store base in the first fiscal week of closure until re-opened for a full
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Whole Foods Market, Inc. owns and operates the largest chain of natural and organic foods supermarkets. Our Company
mission is to promote vitality and well-being for all individuals by supplying the highest quality, most wholesome foods
available. Through our growth, we have had a large and positive impact on the natural and organic foods movement
throughout the United States, helping lead the industry to nationwide acceptance. We opened our first store in Texas in 1980
and, as of September 25, 2005, have expanded our operations both by opening new stores and acquiring existing stores from
third parties to 175 stores: 165 stores in 30 U.S. states and the District of Columbia; three stores in Canada; and seven stores
in the United Kingdom. We operate in one reportable segment, natural and organic foods supermarkets.
Our results of operations have been and may continue to be materially affected by the timing and number of new store
openings. New stores generally become profitable during their first year of operation, although some new stores may incur
operating losses for the first one to three years of operations. Our results of operations are reported on a 52- or 53-week
fiscal year ending on the last Sunday in September. Fiscal years 2005, 2004 and 2003 were 52-week years.
In October 2005, the Financial Accounting Standards Board (“FASB”) issued FASB Staff Position (“FSP”) No. FAS 13-1,
“Accounting for Rental Costs Incurred during a Construction Period.” FSP No. FAS 13-1 requires rental costs associated
with operating leases that are incurred during a construction period to be recognized as rental expense. The Company
historically capitalized rental costs incurred during a construction period. In accordance with the transition provisions of FSP
13-1, the Company elected to early adopt and retrospectively apply in these financial statements the requirement to expense
rental costs incurred during a construction period. The Company’s consolidated financial statements have been adjusted to
reflect the early adoption and retrospective application of the lease accounting change, which is further discussed in Note 3
to the consolidated financial statements. The accompanying Management’s Discussion and Analysis incorporates the effects
of this lease accounting change.
The Company accelerated the vesting of all outstanding stock options on September 22, 2005 in order to prevent past option
grants from having an impact on future results. The Company incurred a share-based compensation charge totaling
approximately $18.2 million in the fourth quarter of fiscal year 2005, primarily a non-cash charge related to this accelerated
vesting of options. The Company's effective tax rate for fiscal year 2005 was higher than its historical rate primarily due to
the non-deductible portion of the expense recognized for the accelerated vesting of stock options.
The Company has two stores in the New Orleans area which were damaged by and closed due to Hurricane Katrina during
the fourth quarter of fiscal year 2005, and accordingly the Company recorded expenses totaling approximately $16.5 million
for related estimated net losses.
Sales for fiscal year 2005 totaled approximately $4.7 billion, an increase of approximately 22% over the prior year, driven by
13% weighted average square footage growth and comparable store sales growth of 12.8%. We experienced sales growth
across all regions, all departments and all age classes of stores. We had sales per gross square foot of $869, an increase of
approximately 11% over the prior year. Sales for fiscal year 2004 totaled approximately $3.9 billion, an increase of
approximately 23% over the prior year, with 9% weighted average square footage growth and comparable store sales growth
of 14.9%. Sales for fiscal year 2003 totaled approximately $3.1 billion, an increase of approximately 17% over the prior
year, with 11% weighted average square footage growth and comparable store sales growth of 8.6%.
Net income totaled $136.4 million, $129.5 million and $98.9 million for fiscal years 2005, 2004 and 2003, respectively,
increasing year-over year by approximately 5%, 31% and 24%, respectively. Diluted earnings per share totaled $1.98, $1.98
and $1.58 for fiscal years 2005, 2004 and 2003, respectively.
Cash flows from operations totaled approximately $410.8 million, $330.3 million and $281.0 million for fiscal years 2005,
2004 and 2003, respectively. Our capital expenditures totaled approximately $324.1 million, $266.5 million and $174.7
million in fiscal years 2005, 2004 and 2003, respectively, including approximately $207.8 million, $156.7 million and $90.6
million, respectively, for new stores. We opened 15 new stores during fiscal year 2005 and 12 new stores during each of
fiscal years 2004 and 2003, and we ended fiscal year 2005 with 175 stores.
Year over year, total assets increased 24% to $1.9 billion, total liabilities decreased 8% to $524 million, and shareholders'
equity increased 44% to $1.4 billion. At the end of fiscal year 2005, we had $18.9 million in long-term debt and $345.4